Jarir Marketing Company Initiation of Coverage Equities | Consumer Discretionary | Saudi Arabia Sunday, 13 September 2015

A favorable product mix in high-income markets — BUY Price Target: SAR241.34 Initiate with a BUY/LOW RISK LOW RISK Expected Total Return: 41%

Expanding in high-income markets: Jarir Marketing Jarir’s local business is capitalizing on: (1) a relatively Stock Performance & Details Company (Jarir) started its operations by opening a young population (c.80% of population is below the retail store in 1974 and later a wholesale store in age of 40), (2) customers are eager to buy electronics JARIR (SAR) vs. SASEIDX Rebased 1979. Since then, Jarir managed to expand its with the latest technology, (3) rising brand and Stock Details Last price (SAR) 176.17 Volume (RHS) JARIR SASEIDX Rebased business by opening new showrooms and quality awareness among customers, (4) limited 52-W High (SAR) 241.00 introducing new products. Following its success in entertainment facilities in KSA, (5) high literacy rates 300.00 0.50 52-W Low (SAR) 165.00 the local market, Jarir started to expand in the GCC with better educational standards, and (6) high 0.45 6M -ADVT (SARmn) 22.34 250.00 0.40 % Chg: M oM -18.8 region. Jarir is currently operating through 39 retail purchasing power. Our forecasts for Jarir’s revenues 0.35 200.00 -13.9 showrooms (incl. 33 in KSA and six in GCC), along are based on: (1) the expected number of new 0.30 % Chg: YoY with four wholesale showrooms and six directs sales showrooms, (2) the estimated showrooms area, and 150.00 0.25 % Chg: YTD -5.2 0.20 M ubasher Ticker 4190.TDWL 100.00 0.15 offices. Although Jarir aims to double the number of (3) estimated growth of average sales per sq. ft. Bloomberg Ticker JARIR AB showrooms to 72 in the next 5-6 years, we forecast a 50.00 0.10 Initiate with BUY/LOW RISK; PT of SAR241.34 (+41% 0.05 Capital Details 75% achievement to reach 63 showrooms by 2020. 0.00 - No. of Shares (mn) 90.0 total return): We used two different valuation

According to Forbes, Jarir was among the top 10 M kt Cap (SARmn) 15,855.3

Jul-15

Oct-14 Apr-15

Jan-15 Jun-15

Feb-15 Mar-15

Nov-14 Dec-14 Sep-15 Sep-14 Aug-15 most recognized brand names in the Middle East in models to value Jarir: (1) Discounted cash flow (DCF), May-15 M kt. Cap (USDmn) 4,227.4 2013 and ranked first as the strongest executive resulting in SAR276.40/share and (2) Multiples Free Float (%) 50.7% Foreigners Owned/Limit 8.26%/49.0% management in retail segment in 2012. valuation based on PER and EV/EBITDA, resulting in an average of SAR159.54/share. Applying 70%/30% Favorable demographics with numerous growth weights to both, respectively, we reached a 1-year Company Profile th drivers: The Saudi retail market is ranked as the 16 price target (PT) of SAR241.34, implying a 37% Jarir Marketing Company (Jarir) was established in Riyadh, Saudi Arabia in 1979 and was most attractive retail market worldwide. We believe upside (41% total return). later converted to a joint stock company. In 2003, it became a listed company in the Saudi Summary KPIs (SAR mn) 2012a 2013a 2014a 2015e 2016e 2017e capital market. The company has a paid-in capital of SAR900mn. Jarir operates through two business divisions: Retail and Wholesale in Saudi Arabia and in other GCC countries. Total revenues 4,634 5,243 5,699 6,568 7,451 8,356 The company offers a broad portfolio of products, including office and school supplies, EBITDA 584 669 758 846 965 1,089 English and Arabic books, computers and software, mobile phones and accessories, among EBITDA margin 12.6% 12.8% 13.3% 12.9% 13.0% 13.0% others. Net Profit after zakat 570 653 745 838 959 1,086 Net profit margin 12.3% 12.5% 13.1% 12.8% 12.9% 13.0% EPS 6.33 7.26 8.28 9.31 10.65 12.07 DPS 5.00 5.63 6.20 7.45 8.52 9.65 BVPS 11.40 13.03 15.11 16.97 19.10 21.52 PER (x) 16.3x 22.0x 23.4x 18.9x 16.5x 14.6x Menna Attawia PBV (x) 9.0x 12.3x 12.8x 10.4x 9.2x 8.2x Equity Analyst EV/EBITDA (x) 16.1x 21.8x 23.1x 18.8x 16.4x 14.4x [email protected] Dividend Yield 4.9% 3.5% 3.2% 4.2% 4.8% 5.5% Medhat Ali Net Debt (Cash)-to-Equity 10.3% 15.2% 0.7% 1.8% -3.6% -7.9% Senior Equity Analyst Net Debt (Cash)-to-EBITDA 0.18x 0.27x 0.01x 0.03x -0.06x -0.14x [email protected] Source: Company reports, MubasherTrade Research estimates Page 1 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015 Corporate Profile

Jarir Marketing Company (Jarir) was established in Riyadh, Saudi Corporate Structure Arabia in 1979 and was later converted to a joint stock company. In 2003, it became a listed company in the Saudi capital market. The Jarir Marketing Co. Saudi Arabia (Jarir) company has a paid-in capital of SAR900mn. Jarir operates through two business divisions: Retail and Wholesale in Saudi Arabia and in other GCC countries. Jarir Bookstore, the Retail division, currently operates through 33 stores in 15 Saudi cities in addition to six United Book Shop Jarir Trading Co. UAE (100%) (100%) showrooms in other GCC countries, including three in Qatar, one in Kuwait and two in Abu Dhabi (the UAE). The Wholesale division operates through four showrooms and six direct sales offices all United Company Qatar for office Supplies located in Saudi Arabia. The company offers a broad portfolio of (100%) products, including office and school supplies, English and Arabic books, children’s toys and educational aids, arts and crafts materials, Jarir Book Store computers and software, mobile phones and accessories, audio and Kuwait (100%) video instruments, and photography tools. Jarir’s operations also include the purchase of residential and commercial buildings and Jarir Egypt land acquisition to construct units for sale or leasing. Egypt Financial Leasing (100%)

Source: Jarir’s investor presentation March 2015

Shareholder Structure Board of Directors

Olyan Mutual Chairman Financial Funds, Holding 3.5% Muhammad Al-Agil Co., 2.3% Managing Director & Head of Wholesale Al Agil Abdullah Al-Agil Brothers, 43.4% Free Board Board Board Board Board Board Member Member & Member & Member Member Member Float, COO Nasser CEO Samer M. Fahad Abdullah Nasser 50.7% Abdulrahman Abdulkarim Al Abdullah Saad Al-Agil Abdulaziz Al-Agil Al-Agil khawashki Al-qasim Al-Drees

Source: Company reports Source: Company reports Page 2 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Valuation

Valuation Models • A terminal weighted average cost of capital Investment Rationale • Entering Egypt leaves a large room for growth: (WACC) of 7.92%. The company now owns two locations in Egypt Using two valuation models, we reached a • Favorable demographics of KSA: Saudi Arabia Multiples – SAR159.54/share: Based on global with a total space area of 5,000 sqm used for weighted-average price target (PT) of is the largest retail market in the GCC with median 2015e PER and EV/EBITDA of 18.2x and the company’s leasing activity. Jarir should SAR241.34/share as follows: numerous drivers for growth. (1) KSA is largest 13.4x, respectively, we reached a 1-year value of benefit from the huge market in Egypt should country in the GCC in terms of population DCF – SAR276.40/share: We discounted FCFF SAR159.54/share (a 13% discount to market). it decide to open new showrooms there. based on the following assumptions: (c.80% below the age 40). (2) High purchasing • Roco, Jarir’s private label, became the market Initiate with a BUY/LOW RISK rating; PT of power in KSA and GCC countries as evidenced leader in office and school supplies. • KSA implied risk-free rate of 2.89%. SAR241.34/share: We assigned the DCF model a by high GDP per capita income levels. (3) • With a diversified supplier base, after-sale 70% weight and the multiples valuation a 30% Customers are eager to buy electronics with • KSA equity risk premium (ERP) of 6.99% service is effected through own authorized weight, reaching a PT of SAR241.34/share. This the latest technology. (4) High literacy rates (consisting of a US market ERP of 5.75% + a service centers or tie-up with product vendors. implies a potential upside of 37% versus recent with better education standards enable the KSA country risk premium of 1.24% based on • Implementation of the e-commerce law, market price in addition to an expected DPS of public to easily adapt to new technologies. (5) the spread between US and KSA 5-year Credit protecting users against fraud, is expecting to SAR7.45 in 2015, implying a yield of 4.2%. This The government focus on investing in Default Spreads levered up by 75% to account increase customer trust in online payment. for inherent volatility in equity returns). sums up to a total return of 41%, well in excess of technological resources and e-books for our estimated required rate of return (7.21%). developing the educational process. • Stable profit margins, high cash conversion • A beta of 0.72 (adjusted 5-year monthly beta) Hence, we initiate coverage on Jarir with a • rates, and a strong financial position, and a terminal growth rate (TGR) of 3.0%. Internet usage drives the demand for Jarir’s BUY/LOW RISK rating. products: Strong demand for smartphones and evidenced by low leverage ratios. • A stable and high dividend pay-out ratio of DCF Valuation laptops due to the continues growth of internet usage. 80% implies an attractive yield of 4.2%. All figures in SAR mn except per share figures Valuation weights • Sustainable growth due to ongoing • According to Nitaqat program, Jarir is in the Sum of PV of FCFF (2015-2020) 19.1% 4,408 innovations: The continuous development and Green area with c.31% Saudization rate which PV of Terminal Value 80.9% 18,654 upgrade of technologies and electronic enables the company to benefit from some Enterprise Value 23,062 products assure the sustainable demand privileges related to easier visa processing. Jarir targets reaching a minimum Saudization Less: (Net debt) / Plus: Net cash (10) growth on Jarir’s products. • Showrooms spread across KSA and the GCC: rate of 35% to be in the Platinum area which Equity value 100.0% 23,051 The company’s prime store locations cover will open more privileges to the company. No. of shares 90.0 major cities across KSA and offer all Jarir’s Key Risks FV/share - today 256.13 products. The company also plans to double its • No barrier to enter the market and growing LTFV/sh. - 12M from today 70.0% 276.40 stores by 2018 to reach more customers inside competition: Jarir may face lower-than- KSA and across the GCC. expected profitability margins due to fierce • Market leadership: Jarir has leading market competition, especially in electronics Multiples Valuation shares in the major categories (laptops, (smartphones & PCs). Global EV/EBITDA 2015 13.4x tablets, and smartphones), supported by • Failure to meet the company’s annual plan to Target equity value 11,321 strong partnerships with top manufacturers—a open the targeted number of showrooms marketing and pricing advantage. 1-Year Price Target 135.75 increases the uncertainty to double the current • Diversification of electronic and educational number of showrooms. Global PER 2015 18.2x products: Through its retail and wholesale • Implementation of the Nitaqat law could have EPS 2015 9.3 divisions, Jarir offers a broad portfolio of a negative short-term effect in terms of 1-Year Price Target 183.33 products through 12 categories. reduced expat hiring. This will put cost • Maintaining customer loyalty: Jarir maintains pressures on local companies to hire for high- Average Multiple Valuation 30.0% 159.54 customer loyalty through issuing loyalty cost nationals instead of low-cost workers discount cards to its customers, reaching from South-East Asia. Weighted Average Fair Value 241.34 338,000 cards as of 2014. Source: MubasherTrade Research estimates Page 3 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Valuation (Cont.’d)

2012a 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e All figures in SAR mn Total revenues 4,634 5,243 5,699 6,568 7,451 8,356 9,266 10,217 11,320 % change - YoY 11.7% 13.1% 8.7% 15.2% 13.5% 12.1% 10.9% 10.3% 10.8% EBITDA 584 669 758 846 965 1,089 1,214 1,346 1,502 EBITDA margin 12.6% 12.8% 13.3% 12.9% 13.0% 13.0% 13.1% 13.2% 13.3% EBIT 562 648 727 817 934 1,055 1,177 1,305 1,457 KFIs EBIT Margin 12.1% 12.4% 12.8% 12.4% 12.5% 12.6% 12.7% 12.8% 12.9% Pretax income/(loss) 588 674 766 862 986 1,117 1,248 1,383 1,544 Zakat (18) (21) (20) (24) (27) (31) (34) (38) (42) Net income after tax 570 653 745 838 959 1,086 1,213 1,345 1,501

EBIT 562 648 727 817 934 1,055 1,177 1,305 1,457 Taxes on EBIT (15) (18) (20) (22) (26) (29) (32) (36) (40) Depreciation 22 21 31 29 32 34 37 40 45 Capex (94) (201) (85) (111) (117) (123) (129) (163) (199) Change in Working Capital (106) (64) (21) (56) (36) (55) (74) (78) (90)

FCFFCalculation FCFF 368 387 632 656 787 882 978 1,070 1,173

Terminal value (end of 2020) - based on TGR 27,937

Adjusted Beta 0.72 Equity weight 98.8% 99.3% 100.0% 100.0% 100.0% 100.0% Risk-free rate 2.9% Debt weight 1.2% 0.7% 0.0% 0.0% 0.0% 0.0% Equity market premium 7.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Equity (CoE) 7.9% Before-tax cost of debt (CoD) 3.0% AT CoD 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Tax rate 2.8% WACC 7.9% 7.9% 7.9% 7.9% 7.9% 7.9% After-tax cost of debt (AT CoD) 2.9% Terminal Growth Rate 3.0% Terminal WACC 7.9%

Discount rate & PV of FCFFPV& of Discountrate PV of FCFF 641 712 740 760 771 783

Sum of PV of FCFF (2015-2020) 4,408 PV of Terminal Value 18,654 Cost of equity Enterprise Value 23,062 6.3% 7.1% 7.9% 8.7% 9.5% Less: (Net debt) / Plus: Net cash (10) 2.0% 332.5 279.4 240.6 211.1 187.8 Equity value 23,051 2.5% 367.0 302.5 256.9 223.0 196.8 Fair Value Fair FV/share - today 256.1 3.0% 411.8 331.1 276.4 237.0 207.2

Growth 3.5% 472.4 367.5 300.3 253.6 219.3 LTFV/sh. - 12M from today 276.4 4.0% 558.9 415.6 330.3 273.8 233.6

Source: Company reports, MubasherTrade Research estimates

Page 4 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Comparable Valuation

Mkt cap EBITDA Margin PER EV/EBITDA Dividend Yield PBV (USD mn) Country Company name 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016 2014 2015 2016

QATAR Al Meera Consumer Goods Co QSC 1,400 8% 8% 8% 17.7x 25.2x 21.2x 19.2x 21.8x 17.7x 4.5% 3.4% 3.9% 2.8x 3.7x 3.6x SAUDI ARABIA United Electronics Co 439 5% 5% 5% 19.9x 10.4x 9.2x 14.1x 8.0x 6.8x n/a 6.5% 7.7% 4.7x 2.8x 2.6x SAUDI ARABIA Al Hassan Ghazi Ibrahim Shaker 508 8% 8% 11% 5.7x 11.0x 9.6x 22.1x 14.4x 10.6x 4.2% 6.6% 6.3% 2.3x 2.0x 1.8x SAUDI ARABIA Abdullah Al Othaim Markets Co 1,170 6% 6% 6% 22.1x 18.2x 15.7x 15.7x 13.4x 12.2x 1.7% 1.8% 2.2% 5.0x 4.1x 3.6x SAUDI ARABIA Fawaz Abdulaziz Al Hokair & Co 4,170 17% 16% 16% 24.5x 19.2x 15.5x 21.3x 16.4x 13.1x 1.5% 3.1% 3.9% 7.8x 5.7x 5.7x EGYPT Oriental Weavers 559 13% 17% 16% 14.8x 9.0x 7.9x 9.5x 5.9x 5.4x 0.7% 5.6% 6.9% 1.4x 1.1x 1.0x EGYPT Ghabbour Auto 358 9% 8% 8% 22.5x 8.8x 7.2x 6.5x 6.3x 5.1x 0.0% 13.3% 15.9% 2.0x 0.7x 0.7x

MENA Markets' Average 1,229 9.3% 9.5% 10.2% 18.2x 14.5x 12.3x 15.5x 12.3x 10.1x 2.1% 5.8% 6.7% 3.7x 2.9x 2.7x MENA Markets' Median 559 7.9% 8.3% 8.3% 19.9x 11.0x 9.6x 15.7x 13.4x 10.6x 1.6% 5.6% 6.3% 2.8x 2.8x 2.6x

LUXEMBOURG B&M European Value Retail SA 4,831 9% 10% 10% n/a 30.5x 25.0x n/a 20.7x 17.4x n/a 0.9% 1.4% n/a 4.39x 3.95x BRITAIN Booker Group PLC 4,855 3% 3% 4% 27.5x 28.0x 24.8x 19.0x 18.7x 16.9x 1.9% 2.6% 2.6% 4.9x 5.3x 5.2x UNITED STATES Barnes & Noble Inc 1,064 4% 5% 6% n/a 31.0x 19.1x 5.3x 3.2x 4.2x 0.0% n/a n/a 1.5x 0.9x 2.0x UNITED STATES Office Depot Inc 4,160 0% 5% 6% 265.7x 16.7x 13.1x 137.8x 6.3x 5.5x 0.0% 0.0% 0.0% 3.0x 2.3x 2.0x UNITED STATES Best Buy Co Inc 12,981 4% 5% 6% 11.2x 15.4x 14.2x 3.7x 5.3x 5.1x 2.9% 1.9% 3.1% 2.0x 2.7x 2.6x UNITED STATES Family Dollar Stores Inc n/a 6% 7% 7% 26.1x n/a n/a 14.1x n/a n/a 1.4% n/a n/a 5.5x n/a n/a UNITED STATES Amazon.com Inc 245,665 6% 10% 10% n/a 109.4x 59.5x 28.9x 23.8x 19.0x 0.0% 0.0% 0.0% 13.4x 20.2x 14.7x UNITED STATES Dollar Tree Inc 15,978 15% 15% 11% 18.6x 21.9x 23.8x 9.5x 18.2x 13.4x 0.0% 0.0% 0.0% 9.0x 7.9x 3.9x CHINA Intime Retail Group Co Ltd 2,392 32% 32% 32% 8.5x 16.3x 15.0x 8.9x 11.5x 10.7x 4.9% 3.4% 3.2% 0.9x 1.3x 1.2x

Developed Markets' Average 36,491 8.8% 10.3% 10.2% 59.6x 33.6x 24.3x 28.4x 13.5x 11.5x 1.4% 1.3% 1.5% 5.0x 5.6x 4.4x Developed Markets' Median 4,843 5.5% 7.0% 7.1% 22.3x 24.9x 21.5x 11.8x 14.8x 12.1x 0.7% 0.9% 1.4% 3.9x 3.6x 3.2x

Global Peers' Average 20,035 9.0% 10.0% 10.2% 37.3x 24.7x 18.7x 22.4x 12.9x 10.9x 1.7% 3.5% 4.1% 4.4x 4.3x 3.6x Global Peers' Median 2,392 7.1% 7.9% 8.2% 19.9x 18.2x 15.5x 14.1x 13.4x 10.7x 1.5% 2.9% 3.2% 3.0x 2.8x 2.6x

Jarir @ Market Price 4,316 23.4x 18.9x 16.5x 23.1x 18.8x 16.4x 3.2% 4.2% 4.8% 12.8x 10.4x 9.2x Jarir @ MubasherTrade fair value 5,913 13.3% 12.9% 13.0% 29.1x 25.9x 22.7x 25.7x 22.4x 19.8x 2.6% 3.1% 3.5% 16.0x 14.2x 12.6x Source: Bloomberg, MubasherTrade Research estimates

Page 5 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Financial Summary

Balance Sheet (SAR mn) Per-Share Data FY End: December 2012a 2013a 2014a 2015e 2016e 2017e FY End: December 2012a 2013a 2014a 2015e 2016e 2017e

Total cash & short-term investments 111 86 128 160 174 154 Price 103.0 160.0 194.0 176.2 176.2 176.2 Accounts receivable, net 258 137 204 235 267 299 # Shares (mn) 90.0 90.0 90.0 90.0 90.0 90.0 Inventories 726 771 817 930 1,035 1,139 EPS 6.33 7.26 8.28 9.31 10.65 12.07 Other current assets 38 180 232 268 279 313 DPS 5.00 5.63 6.20 7.45 8.52 9.65 Total current assets 1,133 1,174 1,381 1,593 1,755 1,904 BVPS 11.40 13.03 15.11 16.97 19.10 21.52 Net property, plant and equipment 814 994 1,048 1,130 1,215 1,304 Equity and other investments 34 33 33 33 33 33 Valuation Indicators Total assets 1,981 2,201 2,462 2,756 3,003 3,241 FY End: December 2012a 2013a 2014a 2015e 2016e 2017e

Short-term debt 0 - - 150 113 - PER (x) 16.3x 22.0x 23.4x 18.9x 16.5x 14.6x CPLTD 17 125 100 38 - - PBV (x) 9.0x 12.3x 12.8x 10.4x 9.2x 8.2x Trade accounts payable 569 527 711 824 933 1,046 EV/Sales (x) 2.0x 2.8x 3.1x 2.4x 2.1x 1.9x Other current liabilities 111 130 133 154 175 196 EV/EBITDA (x) 16.1x 21.8x 23.1x 18.8x 16.4x 14.4x Total current liabilities 697 783 945 1,165 1,221 1,242 Dividend Payout Ratio 79.0% 77.6% 74.9% 80.0% 80.0% 80.0% Long-term debt 200 138 38 - - - Dividend Yield 4.9% 3.5% 3.2% 4.2% 4.8% 5.5% Provisions 47 56 63 63 63 63 Other non-current liabilities 11 51 57 - - - Profitability & Growth Ratios Total long term liabilities 258 245 158 63 63 63 FY End: December 2012a 2013a 2014a 2015e 2016e 2017e Paid in capital 600 900 900 900 900 900 Legal Reserves 108 65 140 224 320 428 Revenue Growth 11.7% 13.1% 8.7% 15.2% 13.5% 12.1% Retained Earnings 318 207 320 404 500 608 EBITDA Growth 10.6% 14.6% 13.3% 11.6% 14.1% 12.8% Shareholders' equity 1,026 1,173 1,360 1,528 1,719 1,937 EPS Growth 11.1% 14.6% 14.1% 12.4% 14.4% 13.3% EBITDA Margin 12.6% 12.8% 13.3% 12.9% 13.0% 13.0% Income Statement (SAR mn) Net Profit Margin 12.3% 12.5% 13.1% 12.8% 12.9% 13.0% FY End: December 2012a 2013a 2014a 2015e 2016e 2017e ROAE 59.0% 59.4% 58.9% 58.0% 59.1% 59.4% Total revenues 4,634 5,243 5,699 6,568 7,451 8,356 ROAA 30.8% 31.2% 32.0% 32.1% 33.3% 34.8% Cost of revenues (3,921) (4,430) (4,785) (5,541) (6,281) (7,038) Operating expenses (130) (143) (156) (181) (205) (230) Liquidity & Solvency Multiples EBITDA 584 669 758 846 965 1,089 FY End: December 2012a 2013a 2014a 2015e 2016e 2017e Depreciation (22) (21) (31) (29) (32) (34) EBIT 562 648 727 817 934 1,055 Net Debt/(Cash) 106.0 177.8 10.1 27.7 (61.4) (153.6) Net interest income/(expense) (5) (7) (5) (5) (5) (2) Net Debt (Cash)-to-Equity 10.3% 15.2% 0.7% 1.8% -3.6% -7.9% Other non-operating income/(expense).) 32 33 44 50 57 64 Net Debt (Cash)-to-EBITDA 0.18x 0.27x 0.01x 0.03x -0.06x -0.14x Net Profit before zakat 588 674 766 862 986 1,117 Debt-to-Assets 10.9% 12.0% 5.6% 6.8% 3.7% 0.0% Zakat (18) (21) (20) (24) (27) (31) Current Ratio 1.6x 1.5x 1.5x 1.4x 1.4x 1.5x Net Profit after zakat 570 653 745 838 959 1,086 Consensus Estimates Cash Flow Statement (SAR mn) FY End: December 2015e 2016e 2017e FY End: December 2012a 2013a 2014a 2015e 2016e 2017e Revenues 6,760 7,730 8,930 MubasherTrade Research vs. Consensus -2.8% -3.6% -6.4% Net Cash From Operating Activities 475 634 730 709 902 1,003 Net Income 877 1,025 1,170 Net Cash used in Investing Activities (93) (200) (85) (111) (117) (123) MubasherTrade Research vs. Consensus -4.4% -6.4% -7.2% Net Cash used in Financing Activities (382) (434) (645) (576) (790) (919) Net Change in Excess Cash - - - 23 (5) (39) Fwd PER (x), MTR Price Target 25.9x 22.7x 20.0x Fwd PBV (x), MTR Price Target 14.2x 12.6x 11.2x CAPEX (94) (201) (85) (111) (117) (123) Fwd EV/EBITDA (x), MTR Price Target 22.4x 19.8x 17.7x

Source: Company data, MubasherTrade Research estimates a = Actual; e = Estimate Share price at 11-Sep-15 Page 6 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Industry Overview

GDP growth and labor force participation to literacy rates with better educational standards rates, while Yellow and Red include the ones represents quarterly increases of 1, 1 and 2 drive private consumption: Saudi Arabia is will enable the public to easily adapt to new with low rates. The long-term target Saudization percentage points, respectively. In Q2 2015, KSA characterized with high GDP growth rates technologies. We expect that the improvement rate has been set at 75% for the private sector; consumer confidence index decreased to record relative to the global average. As for 2015, the in awareness among customers will lead the however, in most operating companies, the 105 points; however, it still remained above 100 IMF lowered its GDP growth forecast for Saudi local market to become more dynamic in actual rates are still much lower, as Saudi which indicates optimism. Arabia to 3% from 3.6% achieved in 2014 due to responding to quick changes in consumer employees cost more than expats which puts the decrease in oil prices. KSA real GDP is preferences and needs. pressure on companies’ profitability margins. Growing penetration of digital media and rising expected to converge towards the global The KSA government started to impose penalties social media usage contribute to the growth of average of 3.2% by 2019. Moreover, KSA GDP Non-oil sectors to grow more rapidly than the on firms not in compliance with the rule which the KSA retail sector: The absence of cinemas per capita is also expected to grow by a 5-year oil sector: Saudi Arabia began to diversify its may result in the exit of many private firms or and concerts in the Kingdom has resulted in CAGR of 3% to reach USD62,000 by 2020, up economy to reduce dependency on oil, may lead to downsizing by reducing their size robust demand for home entertainment. Further from USD52,000 in 2014. Meanwhile, the labor especially after the slump in oil prices which will below ten employees to avoid penalties. In supporting these aspirations is that the majority force participation rate out of total population give space for other small sectors like retail to plain language, Nitaqat regulations are less of population is below the age of 40 with high (15+ years) reached 55% in 2013 (versus 49% for grow. Despite the dominant share of the oil economic efficient over the short term. income levels. This has resulted in rising demand MENA) compared to 51% in 2005. Higher levels sector as a percentage of real GDP, this share for the latest electronic gadgets, such as of GDP per capita along with higher rates of has marginally decreased in 2014 by 1% to reach A huge KSA retail market with potential for smartphones, tablets and gaming consoles. labor force reflect growing private consumption, 40%. However, as for small non-oil sectors, they higher growth: The retail market in Saudi Arabia According to the World Bank data, mobile which has increased by a 5-year CAGR of 9% have witnessed slightly higher contribution to has evolved over time, but the industry penetration rates in Saudi Arabia reached 184% from 2009 to 2014 to reach SAR894bn in 2014 GDP in 2014. Meanwhile, non-oil sectors have witnessed key developments in the past 10 in 2013 (almost double the 93% global average) compared to SAR592bn in 2009. grown by higher rates than that of the oil sector. years. According to the former CEO of Al- compared to 34% in 2005. Internet users The manufacturing sector was leading the Othaim, Saudi Arabia is the largest retail market reached 18.3mn in 2014 compared to 9.3mn in Favorable demographics, youth domination and growth with 8% in 2014, followed by the in the GCC with an estimated market size of 2008, while internet penetration rates reached higher literacy rates are key dynamics for the construction sector’s 7%, wholesale & retail c.USD100bn in 2015 with food and beverages 60% in 2014 compared to 36% in 2008. It is also retail sector to prosper in KSA: With a trade, restaurants & hotels along with constituting c.44%. Moreover, according to EIU expected that demand for internet services will population of 31.2mn (according to SAMA report community, social & personal services each with estimates, retail sales have the potential to continue to significantly increase over the next for 2014), KSA is the most populous nation in the 6%. Finally, mining & quarrying exhibited the increase at a 4-year CAGR of 8% (2012-2016), few years as a result of the availability of high- GCC. The population is expected to grow to lowest growth rates with 1% in 2014. compared to a historical rate of 4.5% (2008- speed fiber-optic networks (FTTx), increased 35mn by 2020 (versus a combined population of 2012). internet content and the continued spread of 32.4mn for the remaining GCC countries). This Nitaqat program could be a drag on businesses handheld smart devices and applications. With shows a 10-year CAGR of 2% (2010 and 2020). until reaching its target: Expatriates residing in KSA is ranked the world’s 16th most attractive the increased exposure to the Western world Meanwhile, the domination of youth in the Saudi Arabia on foreign worker visas make up retail market: According to Global Retail through various digital media channels, population will highly support KSA retail sector, approximately one third of total KSA population. Development Index (GRDI) 2014, the KSA retail consumers are now more aware of, and as around 80% out of total population is below There is a sizeable wage gap between Saudi market is ranked the 16th most attractive retail passionate about, international trends and the age of 40 as of 2014. On the other hand, nationals and foreign workers, as the latter are market worldwide. This is based on present and products, and demand more of them at home. according to the World Bank, literacy rates more affordable. Until recently, Saudi nationals future investment opportunities and growth This growing demand helped increase the among youths between 15 and 24 year old formed fewer than 10% of the private sector prospects. Also, according to the latest Nielsen variety of products and retailers in the market. reached 94.4% in 2013. Meanwhile, data for workforce. Thus, the KSA government launched Global Survey on Consumer Confidence and primary and secondary school enrollment rates Nitaqat program in 2011, aiming to encourage Spending Intentions, KSA consumer confidence show rates above 100% from 2009 until 2013 the employment of Saudi nationals, particularly index increased in Q1 2015 to record 107 points, due to the inclusion of students enrolled early in of the young population, in the private sector. an increase of 5 points compared to Q4 2014. schools as well as those who enrolled late or The program classifies the country's private However, it was not across all measured lifestyle have failed, and are repeating the year. firms into four categories: Premium, Green, categories. Details show that 23% was spent on Therefore, we believe that the dominance of Yellow and Red. Premium and Green categories home entertainment, 18% on new clothes, and youth in the population as well as their high include the companies with high Saudization 15% on new technology products. This

Page 7 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Industry Overview (Cont.’d)

Potential evolution in e-books market: E-Commerce and online retail will surge in Recently, the world was introduced to e-book Saudi Arabia: Higher internet penetration, readers, such as Amazon’s Kindle. Although the currently standing at 60%, coupled with high technology is not widely tested, we believe the disposable income in Saudi Arabia, have introduction of such innovative products in the helped increase online shopping. However, the Saudi market, led by Jarir through the “Jarir level of confidence in making payments online Reader” app, will lead to a new era in e-book is still low. Accordingly, many companies retail business. introduced other methods of payments, such as cash on delivery (COD), which increased Emphasis on knowledge economy to boost e- customers’ confidence in making purchases. book sales and compatible smart devices: The Other solutions have also been introduced to Ministry of Education is seeking to restructure make the payment process more secure, the public education sector through an including the introduction of Payfort and Telr. integrated development plan involving the According to a Dubai-based PixHeart*, it is development of the educational curricula in anticipated that the e-commerce market size response to modern scientific and technical in Saudi Arabia will hit USD13.3bn by 2015 with developments. The government aims to COD being the dominant payment method expand the use of ICT, integrate it into the accounting for 75% of online transactions. educational process and provide the school Online retail is expected to account for 8% of environment with the required technological total retail in the country. We note that resources. According to the Ministry of electronics are the most popular purchases Finance, total government expenditures on made online in Saudi Arabia, and Jarir is in a education showed a 6-year CAGR of 10% good position to benefit from this through its during the period (2009-2015) to reach already-established website, which enables SAR217bn in 2015 compared to SAR122bn in such purchases. 2009. We see the next development in the educational process to boost demand for e- books and smart electronic devices, namely laptops, tablets and smartphones. Thus, we believe Jarir will be able to benefit from this major development.

* Source: http://www.pixheart.com/publications/e-commerce/e-commerce-saudi-arabia-2014/

Page 8 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Industry Overview (Cont.’d)

Converging GDP growth to the world average to by 2020; GDP KSA is largest in terms of population among the GCC, with 2% Increasing private consumption by a CAGR of 9% (2009-2014); per capita to increase by a CAGR of 3% (2015-2020) CAGR (2013-2017) participation rates reached 55% in 2013 35 32.7 56% 4% 3.6% 30.0 1000 894 3.2% 3.2% 3.2% 3.3% 839 3.0% 3.2% 60 30 785 55% 2.7% 800 3% 25 682 55.0% 3.2% 639 54% 3.1% 3.1% 3.2% 20 592 2.9% 2.7% 40 600 53% 2% 2.5% 2.6% 15 62 10.1 53 54 56 58 60 9.0 52% 51 52 10 6.5 7.1 400 20 Population(mn) 4.3 4.5 1% 3.9 3.6 2.7 52.0% 52.0% 51% 5 1.2 1.3 2.0 51.5% 200 51.0% 0% 0 0 50% Jordan Kuwait Bahrain UAE Saudi Oman Qatar 0 49% 2013 2014 2015e 2016e 2017e 2018e 2019e 2020e Arabia 2009 2010 2011 2012 2013 2014 GDP Per Capita Income (USD 000) KSA Real GDP growth 2013 2014 2015e 2016e 2017e World Real GDP growth Private Consumption (SARbn) Labor force participarion rate (% of 15+) Source: IMF Source:IMF Source: CDSI Decreasing contribution for Minning & Quarrying activity to GDP Increasing internet users by a CAGR of 12% (2008-2013), and Increasing school enrollment rates as a % of official education 80% vs. increasing contribution for the non-oil sectors mobile penetration rates exceeding 100% age 1.9% 1.9% 1.9% 1.9% 250% 20 2.0% 195% 140% 189% 187% 184% 114% 114% 116% 60% 8.8% 8.7% 8.7% 9.0% 9.3% 200% 167% 120% 110% 4.6% 4.6% 4.6% 4.8% 4.9% 16.5 15 95% 101% 137% 15.8 100% 93% 11.0% 10.9% 10.8% 10.9% 11.3% 150% 40% 13.6 11.4 10 80% 100% 10.3 51% 57% 9.3 48% 54% 55% 60% 43% 20% 41.6% 42.8% 42.7% 41.0% 36% 38% 41% 31% 37% 40.0% 50% 5 40% 30.0% 30% 20% 0% 0 0% 0% 2010 2011 2012 2013 2014 2008 2009 2010 2011 2012 2013 Community , Social & Personal Services Wholesale & Retail Trade, Restaurants & hotels 2007 2008 2009 2010 2011 2012 2013 Internet users(mn) Internet penetration rate (%) Construction Manufacturing Mobile penetration rates (%) Primary Secondry Tertiary Mining & Quarrying Source: CDSI Source: World Bank Source: Ministry of Economy & planning Increasing funds allocated to human resource development Higher GDP Per capita income for KSA, Kuwait, Qatar and UAE (2015-2020)e by a CAGR of 72% (1st-8th plan) 200 500 100% 174 76% 75% 76% 144 400 68% 80% 150 300 51% 60% 100 31% 28% 71 78 74 200 23% 40% 62 65 60 USD USD 000 53 53 42 100 20% 50 41 0 0% 1st plan 2nd plan 3rd plan 4th plan 5th plan 6th plan 7th plan 8th plan 0 KSA Kuwait Qatar UAE Bahrain Oman Funds allocated to Development of Human resources in Development plans(SARbn) % of total investments in the plan 2015 2016 2017 2018 2019 2020 Source: Ministry of Economy & Planning Source: IMF

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Business Model

Jarir is one of the top 100 companies in Saudi government and banks to supply them with parts. The aim is for the maintenance process 2. Egypt & GCC: Currently, Jarir had three Arabia for the last few years: Employing 3,073 office supplies. Meanwhile, the company not to exceed four days. A database has been showrooms in Qatar, two in Abu Dhabi and staff, Jarir can have its operations analyzed by signed contracts with foreign and established to include all data about the one in Kuwait. Meanwhile, it operates in (A) business segments or (B) geographical international schools to supply them with guarantors for the majority of electronic items Egypt through its subsidiary, Jarir Egypt regions. For the business segments, Jarir books and educational material. sold in Jarir book stores to be available for the Financial Leasing, through which it purchases operates through two business divisions (Retail 3. E-commerce: Jarir introduced an electronic sales representatives at the showrooms. The residential and commercial buildings and and Wholesale), offering a broad portfolio of payment system to cope with global company adopted a new strategy called makes land acquisitions to construct units for products through 12 categories. Jarir Bookstore technological trends. The segment has two ‘’Defensive on Arrival” which enables sale or leasing. This segment revenues is among the top 10 most recognized brand main activities: customers to return back defective items to contributed 7.9% of the company’s total names in the Middle East, according to Forbes. their suppliers. In 2013, a technical support revenues in 2014. However, this share is Also, Jarir was ranked 1st in the Strongest • Jarir Reader is a mobile application where department has been opened in each expected to increase for the coming period Executive Management in the Retail category. paper books could be converted to showroom inside the Kingdom, without the (2015-2020). Although we expect fewer Geographically, in addition to Saudi Arabia, the electronic format. Customers could then need for customers to go to the service showrooms to be opened in the GCC company operates in Egypt, Kuwait, Qatar, and browse, purchase, and download the books center, which helps in speeding up the compared to Saudi Arabia, the growth rate in the UAE. they need. The application currently maintenance process. showroom numbers in the GCC is higher than includes 1,500 titles, with a target to reach that in Saudi Arabia. A. Business Segments 3,000 titles by end of 2015. Meanwhile, the II. The Wholesale Division: The company operates through four showrooms in the I. The Retail Division: Is divided into four main company contracted 10 of the most famous Kingdom along with six direct sales offices segments: (1) Jarir showrooms, (2) Corporate Arab publishers to list their publications through “Jarir Marketing Co.”. Jarir is an official Sales, (3) E-commerce, and (4) Jarir Service inside the app and is targeting another 10 distribution agent for major international Centers. The Retail division contributed 92% of publishers. The company is also planning to stationery brands (e.g. Faber Castell, 3M, UHU). Jarir’s total sales in 2014. include English publications; however, the decision has been delayed due to high Wholesale contributed 8% of the company’s 1. Jarir Showrooms: At end of 2014, Jarir had 31 costs and technical issues. The application total sales in 2014. showrooms in the Kingdom and five across is available on all major platforms (Apple, the GCC (three in Qatar, one in Kuwait and B. Geographical Regions Android, and Windows 8 Desktop). Total another in Abu Dhabi, the UAE) with a total of Jarir operates in three GCC countries other than app downloads until March 2015 was over over 1.36mn sq. ft. Jarir directly owns seven Saudi Arabia: Kuwait, Qatar, and the UAE. These 440,000. The company is targeting to lead showrooms in Saudi Arabia, representing 19% countries are characterized by higher levels of the e-books business in the Arab world, of total showrooms and 24% of total floor GDP per capita than the two other GCC countries which is still a slowly-emerging industry, area. The company owns showrooms at prime (Bahrain and Oman). According to IMF estimates yet has a lot of potential for growth. locations, which are expected to significantly for 2015, GDP per capita shows expected levels appreciate over the coming 3-5 years. By Q2 • Jarir website was launched in 2013. It of USD53,000, USD71,000, USD143,500, 2015, the company opened two new displays the company’s entire range of USD65,000 for KSA, Kuwait, Qatar and the UAE, showrooms, bringing the total number of products. That was the first phase of the respectively, versus USD52,500 and USD40,500 showrooms in Saudi Arabia to 33. During Q3 project. The second phase was completed for Bahrain and Oman, respectively. by H1 2015, by which electronic payment is 2015, Jarir announced the opening of a new 1. Saudi Arabia: As of Q2 2015, Jarir had 33 enabled from the company’s website. showroom in Abu Dhabi, thus raising total showrooms in Saudi Arabia: 26 leased and Delivery of purchased items will also be showrooms to two in the UAE’s capital and 39 seven owned. KSA revenues contributed 92% enabled in the second phase, starting with in Saudi and GCC countries. of the company’s total sales in 2014; however, deliveries within the Kingdom, then 2. Corporate Sales: The company has four this share is expected to show a downtrend throughout the GCC at a later stage. corporate sales offices across Saudi Arabia for the coming period (2015-2020), giving and Qatar. Jarir signed several contracts with 4. Jarir Service Center: The company is working more space for revenues generated from strong and diversified firms operating in to speed up maintenance through the other regions to grow. telecom, oil, and health care as well as the availability of a sufficient inventory of spare

Page 10 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Showrooms spread across KSA and the GCC City Leased Owned Total Al Ahsa 1 1 2 Al Damam 1 2 3 Al Jubail 1 1 Al Khobar 1 1 2 Al Madina 1 1 Al Riyadh 9 2 11 Al Zahran 1 1 Anizzah 1 1 Barida 1 1 Hail 1 1 Jazan 1 1 Jeddah 4 1 5 Makkah 2 2 Yanbu 1 1 KSA Showrooms 26 7 33

Qatar 3 3 Abu Dhabi 2 2 Kuwait 1 1 GCC Showrooms 6 0 6

Total Showrooms 32 7 39 Source: Company reports, MubasherTrade Research

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Business Model (Cont.’d)

Improving product mix with quick response to market Unique store formats and product mix resulted in Showrooms openings (2003- August 2015): requirements: Jarir has evolved as a leading market increased sales/sq. ft.: The outstanding customer player in the non-food retail industry. The historical experience supported by prominent store locations, 50 success was prompted by its strategy to focus on efficient and good-looking store designs, ease of 39 offering an innovative product mix with quick shopping, after-sale service and the company’s 36 40 32 32 response to market dynamics. The company started massive product mix helped Jarir to hold the first 28 30 7 to make significant growth, from 1980s onward, on position among its global competitors with respect to 27 7 30 7 6 the back of (i) successful introduction of ROCO and sales/sq. ft., according to the company’s 2015 20 20 21 7 Royal Falcom, (ii) effective promotion and placement presentation. Sales/sq. ft. reached USD1,031 in 2014, 19 6 6 15 17 led to capture market share from competitors and (iii) compared to USD837 for Best Buy, USD367 for Barnes 20 5 5 5 6 32 upgrading operational efficiency through applying up- & Nobles, USD346 for Staples, and USD165 for Office 5 5 25 26 29 to-date technology. The company’s business focus Depot. 10 21 22 23 15 15 15 expands from wholesale and retail of office and school 10 12 14 stationery equipment and supplies to educational Special position among its local competitors: Jarir has 0 books and electronic products. Currently, the two main competitors locally, Extra (electronics company is selling a wide range of products, including segment) and Obeikan (books, office supplies and PCs, laptops and smart products, such as school supplies). Much like Jarir, Obeikan has more smartphones, PCs and tablets. than 30 bookstores within the country. However, it leased owned Total is considered less known due to its limited product The agreement with Apple to support sales growth: In offering as well as no presence outside Saudi Arabia. Source: Investor presentation 2014, Jarir signed an agreement with Apple, the Extra has a much wider presence within Saudi Arabia producer of iPhone, iPad and Mac products, where it and is a known retailer for a full range of electronic Jarir product portfolio: agreed to directly supply its products to Jarir items. While Jarir largely deals in mobile phones, Bookstore, and subsequently provide after-sale laptops, tablets and computer accessories, Extra has services. This agreement is the first of its kind in Saudi the full range including TVs, fridges, washing Arabia, by virtue of which Apple would be able to machines and other products. This low-margin directly deal with a retail business in the Kingdom. This business has been further penetrated by agreement will allow Jarir to increase the availability hypermarkets offering electronic items at even of Apple products in Saudi Arabia. We believe this lower prices but with a limited product range and would reflect positively on the company’s little or no customer service. performance and financial results. Jarir is the #1 Retailer and the 1st destination for Highly regarded private labels - ROCO™: ROCO is a smartphone, tablets and laptops buyers in Saudi premium brand that covers many product groups from Arabia: According to IDC/GFK, Jarir is the market office and school supplies with more than 1,000 SKUs leader in tablets and laptops with an overall market (stock keeping units). It is registered in Saudi Arabia, share of 30% in the Kingdom (wholesale, corporate other GCC countries, India, China and Egypt. The brand sales and retail sales) and a 50% market share in ROCO has grown to be the largest selling stationery consumer retail segment. As for convertible laptops, brand in Saudi Arabia. The stationery provider has the estimated market share is 40% and more than 60% become the market leader in such supplies through its in consumer retail segment. As for smartphones, high-quality products, offered at competitive prices. Jarir’s current market share is 10-15%. The strong Private label sales represented 74% of wholesale sales partnership relations with top manufacturers, creating and 37% of corporate sales in 2014. marketing and pricing advantage, helped the company maintain this leading market position. Source: Investor presentation

Page 12 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Marketing and advertising play a major role in and recently opened in Cairo Festival City, profits increased by 20.9% YoY in H1 2015 to Changing product mix (2007- Mar 2015) the growth story: Jarir issued a credit card, in targeting more sophisticated people which reach SAR370mn vs. SAR306mn in H1 2014. agreement with Samba to help Samba and reflects positively on Virgin’s revenues. Thus, KSA net profit margin declined from 14% Non-Samba account holders make on-credit in 2009 to reach 12% in H1 2015. purchases from Jarir with zero fees and Financial Overview interest. The aim is to increase customer loyalty … at the expense of lowering weight of Egypt 2007 to the bookstore. The company also issued Strong revenue growth backed by the increase & GCC revenues: Operating through five loyalty discount cards to its customers. The in showrooms: The company succeeded to showrooms, Jarir’s revenues from Egypt & GCC number of cards issued was 338,000 as of 2014, increase its showrooms by an 11-year CAGR of increased by a 5-year CAGR (2009-2014) of accounting for 11% of total sales in 2014. As for 8% during the period 2003-2014, bringing the 8.4% to reach SAR450mn in 2014. Egypt & GCC advertising, Jarir has a strong presence across revenues grew 7% YoY in H1 2015 reaching 39.50 total number to 36 in 2014 compared to only 46.90 all media channels, including outdoor SAR230mn vs. SAR215mn in H1 2014. The % 15 in 2003. Meanwhile, revenues showed % campaigns, radio, print (newspapers), flyers, consistent growth. Retail sales showed a strong weight of Egypt & GCC revenues to total and shipping guides. In addition, Jarir has an growth over the past five years, increasing by a revenues decreased from 11.7% in 2009 to exceptional presence in digital social media, 5-year CAGR (2009-2014) of 18%, reaching 6.9% in H1 2015. Egypt & GCC net profits such as Facebook (1.8mn fans), Twitter (1mn SAR5.24bn in 2014 compared to SAR4.82bn in increased by a 5-year CAGR (2009-2014) of only 13.60 followers), Google+ (631,000 followers) and 0.7% to reach SAR61mn in 2014 vs. SAR59mn in 2013 (+9% YoY). Wholesale revenues increased % YouTube (7mn video views). There are also e- by a 5-rear CAGR (2009-2014) of 9%, reaching 2009. Net profits increased by 3.2% YoY in H1 newsletters and banner advertisements on 2015 to reach SAR32mn vs. SAR31mn in H1 SAR455mn in 2014 compared to SAR414.6mn in 2014 popular local websites. 2013 (+10% YoY). 2014. Thus, Egypt & GCC net profit margin declined from 19.7% in 2009 to reach 13.9% in A bright future in Egypt following the same Stable margins due to diversified sources of H1 2015. route for Virgin Megastore: Jarir is in a very income: EBITDA and net profit margins were 26% close position to Virgin Megastore with respect almost stable, averaging 13% and 12.7% over Inaugurating news showrooms and offering 38.40 to its product offerings and its wide 2010-2014, respectively. Despite the company’s new products pushed 2014 revenues higher: % geographical presence, indicating a very bright strategy of shifting towards low-margin The increase in showrooms helped increase future for Jarir, especially when it comes to its segments, such as electronics, Jarir was customer visits by 13.6% YoY, reaching 29.2mn plan to open in Egypt. Virgin Megastore is now generating income from the after-sale services in 2014 compared to 25.7mn in 2013. Also, the 35.60 a global leader in retail entertainment with provided by the company’s service centers, number of transactions increased by 12.3% % over 14 stores throughout the Middle East. which helped stabilize margins. YoY, reaching 10mn in 2014 compared to Since its establishment in the UAE in 2001, 8.9mn in 2013. The 9% YoY revenue growth in Mar Virgin Megastore set an unbounded target of Rising weight of KSA revenues …: Revenues 2014 was driven by the opening of four new expanding its Middle East territories as well as generated from Saudi Arabia increased by a 5- stores (and one replacement store) during the 2015 its product selection lines to fulfill to growing year CAGR (2009-2014) of 18% to reach year as well as the launch of new products such trends that are eminent for the region. Virgin SAR5.2bn in 2014. Jarir increased the total as the iPhone 6 and Samsung Note 4, which 23.40 Megastore is said to be a global brand with a number of its showrooms from 28 in 2010 to 36 boosted same-store sales (SSS). Meanwhile, % local flavor. Jarir will also capitalize on the in 2014, 31 of which are in the Kingdom. KSA EBITDA margin improved to 13.3% vs. 12.8% in 34.30 favorable demographics in Egypt with c.88% of revenues grew 24.7% YoY in H1 2015 reaching 2013, due to higher EBITDA margin for KSA % population below 54 years of age. Meanwhile, SAR3.08bn in H1 2015 vs. SAR2.47bn in H1 (based on our calculation) to 13.7% in 2014 vs. Jarir is expected to open its showrooms in 2014. The weight of KSA revenues to total 12.6% in 2013. middle- and high-income areas in Egypt, revenues increased from 88.3% in 2009 to 42.30 exploiting its already-owned 5,000 sqm spaces 93.1% in H1 2015. KSA net profits increased by % located in Maadi and Fifth Settlement. Virgin is a 5-year CAGR (2009-2014) of 17% to reach also present in high-income areas like City Stars SAR684mn in 2014 vs. SAR315mn in 2009. Net Source: investor presentation 2014

Page 13 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Strong results in H1 2015, Geographical analysis 2010 2011 2012 2013 2014 H1 2014 H1 2015 Geographical revenues (SAR mn) and YoY growth (RHS) prompted by outstanding All figures in SAR mn 6,000 45.0% performance in KSA Revenues 450 40.0% KSA 2,716 3,828 4,287 4,863 5,249 2,473 3,085 5,000 380 operations: Jarir reported 5,249 35.0% Egypt & GCC 299 319 347 380 450 215 230 347 4,863 strong growth in H1 2015, 30.0% Total 3,015 4,147 4,634 5,243 5,699 2,688 3,315 4,000 319 4,287 25.0% delivering 23% YoY higher 3,828 230 total revenues of Revenues growth 3,000 299 20.0% 215 3,085 KSA 20.4% 40.9% 12.0% 13.4% 7.9% 24.7% 2,716 15.0% SAR3.31bn, fueled by 2,000 2,473 Egypt & GCC -0.3% 6.8% 8.8% 9.3% 18.5% 7.0% 10.0% 24.7% YoY growth in KSA Total 18.0% 37.6% 11.7% 13.1% 8.7% 23.3% 5.0% 1,000 revenues. Jarir opened 0.0% Business weight to total revenues two new showrooms by - -5.0% KSA 90.1% 92.3% 92.5% 92.8% 92.1% 92.0% 93.1% May 2015 (one in Al 2010 2011 2012 2013 2014 H1 2014 H1 2015 Egypt & GCC 9.9% 7.7% 7.5% 7.2% 7.9% 8.0% 6.9% Riyadh and anoher in Jazan), raising total Financial charges KSA Egypt & GCC KSA Egypt & GCC showrooms to 38. KSA NA NA NA 7 5 3 1 Meanwhile, EBITDA Egypt & GCC NA NA NA 0 0 0 0 Weights of geographical revenues Total 11 7 5 7 5 3 1 margin declined to 12.4% 100.0% vs. 13.0% in H1 2014 due Depreciation 98.0% to lower EBITDA margin KSA NA NA NA 19 30 14 12 96.0% 7.7% 7.5% 7.2% 7.9% 8.0% 6.9% Egypt & GCC NA NA NA 1 1 1 3 9.9% for KSA (based on our 94.0% Total 20 21 22 20 31 15 15 calculation) to 12.4% vs. 92.0% 13.1% a year ago. As a Estimated EBITDA 90.0% KSA NA NA NA 612 719 323 383 result, net earnings 88.0% 92.3% 92.5% 92.8% 92.1% 92.0% 93.1% Egypt & GCC NA NA NA 68 62 32 35 increased by 19.3% to 90.1% Estimated unallocated expenses NA NA NA (11) (23) (6) (8) 86.0% SAR402mn. The strong Total 415 528 584 669 758 349 410 84.0% growth came on the back 2010 2011 2012 2013 2014 H1 2014 H1 2015 of improved consumer Estimated EBITDA margin KSA NA NA NA 12.6% 13.7% 13.1% 12.4% KSA Egypt & GCC spending power due to Egypt & GCC NA NA NA 17.9% 13.8% 14.9% 15.2% the 2-month salary Total 13.8% 12.7% 12.6% 12.8% 13.3% 13.0% 12.4% Geographical net income (SAR mn) and NPM (RHS) granted by the 800 20.0% Net profits government. 700 61 18.0% KSA 348 454 506 586 684 306 370 16.0% 600 67 684 Egypt & GCC 53 59 64 67 61 31 32 14.0% 64 586 Total 401 513 570 653 745 337 402 500 59 12.0% 506 400 10.0% Net profits growth 53 454 32 31 8.0% KSA 10.5% 30.5% 11.5% 15.8% 16.7% 20.9% 300 348 370 306 6.0% Egypt & GCC -10.2% 11.3% 8.5% 4.7% -9.0% 3.2% 200 4.0% Total 7.2% 27.9% 11.1% 14.6% 14.1% 19.3% 100 2.0% Net profit margin 0 0.0% KSA 12.8% 11.9% 11.8% 12.1% 13.0% 12.4% 12.0% 2010 2011 2012 2013 2014 H1 2014 H1 2015 Egypt & GCC 17.7% 18.5% 18.4% 17.6% 13.6% 14.4% 13.9% KSA Egypt & GCC KSA Egypt & GCC Total 13.3% 12.4% 12.3% 12.5% 13.1% 12.5% 12.1%

Source: Jarir’s financial statements and MubasherTrade Research

Page 14 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Segmental analysis 2010 2011 2012 2013 2014 H1 2014 H1 2015 Segment revenues (SAR mn) and YoY growth (RHS) All figures in SAR mn 6,000 45.0% Revenues 456 40.0% Retail 2,681 3,771 4,205 4,829 5,243 2,504 3,128 414 5,000 5,243 35.0% Wholesale 334 376 429 414 456 184 187 429 4,829 30.0% 4,000 Total 3,015 4,147 4,634 5,243 5,699 2,688 3,315 376 4,205 25.0% 3,771 187 20.0% Revenues growth 3,000 334 3,128 15.0% Retail 18.8% 40.7% 11.5% 14.8% 8.6% 24.9% 184 2,681 2,504 10.0% Wholesale 11.7% 12.6% 14.1% -3.5% 10.1% 1.6% 2,000 5.0% Total 18.0% 37.5% 11.7% 13.1% 8.7% 23.3% 1,000 0.0% Business weight to total revenues -5.0% - -10.0% Retail 88.9% 90.9% 90.7% 92.1% 92.0% 93.2% 94.4% 2010 2011 2012 2013 2014 H1 2014 H1 2015 Wholesale 11.1% 9.1% 9.3% 7.9% 8.0% 6.8% 5.6%

Financial charges Retail Wholesale Retail Wholesale Retail NA NA NA 7 5 3 1 Wholesale NA NA NA 0 0 0 0 Weights of segmentrevenues Total 11 7 5 7 5 3 1 100.0% 98.0% Depreciation 5.6% 96.0% 7.9% 8.0% 6.8% Retail NA NA NA 18 29 14 14 9.1% 9.3% Wholesale NA NA NA 2 2 1 1 94.0% 11.1% Total 20 21 22 20 31 15 15 92.0% 90.0% Estimated EBITDA 88.0% 94.4% Retail NA NA NA 627 713 333 396 92.1% 92.0% 93.2% 86.0% 90.9% 90.7% Wholesale NA NA NA 53 63 22 22 88.9% Estimated unallocated expenses NA NA NA (11) (18) (6) (8) 84.0% Total 415 528 584 669 758 349 410 82.0% 2010 2011 2012 2013 2014 H1 2014 H1 2015 Estimated EBITDA margin Retail NA NA NA 13.0% 13.6% 13.3% 12.7% Retail Wholesale Wholesale NA NA NA 12.8% 13.8% 12.0% 11.8% Total 13.8% 12.7% 12.6% 12.8% 13.3% 13.0% 12.4% Net income by segment(SAR mn) and NPM (RHS) 800 16.0% Net profits 700 61 14.0% Retail 359 466 510 602 679 316 381 51 679 Wholesale 42 47 60 51 61 21 21 600 12.0% 60 602 Total * 401 513 570 653 740 337 402 500 47 10.0% 510 400 466 8.0% Net profits growth 42 21 300 359 21 381 6.0% Retail 6.5% 29.8% 9.4% 18.0% 12.8% 20.6% 316 Wholesale 13.5% 11.9% 27.7% -15.0% 19.6% 0.0% 200 4.0% Total 7.2% 27.9% 11.1% 14.6% 13.3% 19.3% 100 2.0% Net profit margin 0 0.0% Retail 13.4% 12.4% 12.1% 12.5% 13.0% 12.6% 12.2% 2010 2011 2012 2013 2014 H1 2014 H1 2015 Wholesale 12.6% 12.5% 14.0% 12.3% 13.4% 11.4% 11.2% Retail Wholesale Retail Wholesale Total 13.3% 12.4% 12.3% 12.5% 13.0% 12.5% 12.1% * Net profits for 2014 based on unaudited financial statements Source: Jarir’s financial statements and MubasherTrade Research Page 15 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Forecasts Assumptions per showroom in Saudi Arabia over 2010-2014 the GCC until 2018, two new showrooms, and A healthy cash-conversion cycle (CCC): The was 3,700 sqm versus 2,000 sqm in other GCC three new showrooms in 2019 and 2020, company has succeeded to capitalize on its Our forecasts for Jarir’s revenues are based on markets. Based on recently-opened respectively, we project the weight of the GCC strong system with its suppliers and three main factors: (1) the expected number of showrooms, we assumed an average area of revenues to total revenues to grow from 7.9% distributors. Jarir‘s collection policy has new showrooms, (2) the estimated showrooms 4,000 sqm and 3,600 sqm per new showroom in in 2014 to 14% in 2020. witnessed a major improvement as sales days- area, and (3) the estimated growth of average Saudi Arabia and other GCC markets, on-hand (DOH) declined linearly from 26 days sales per sq. ft. respectively, starting 2015. Going forward, we Slight improvement in margins despite the in 2010 to 13 days in 2014. The adaptation of believe Jarir would be looking to improve its competitive pressure on electronics prices: better inventory management systems led to Jarir set to achieve 75% of its targeted efficiency, hence we project average area per Although EBITDA margin was lower by 0.6% YoY decreased inventory DOH from 80 days in 2010 showrooms openings, based on its historical showroom to decline by 5% per annum to reach at 12.4% in H1 2015, due to higher sales of to 62 days in 2014. Also, the good reputation pattern: We believe the Saudi market will 3,100 sqm in Saudi Arabia and 2,800 sqm in electronics in addition to discounts and and improved credit worthiness of Jarir has remain the dominant market for Jarir, as it is other GCC markets by 2020. promotions, Jarir’s margin should regain been fully capitalized on through increased the home base with considerable brand momentum starting 2016. We believe EBITDA spontaneous finance in nominal terms from awareness and further potential to expand in Sales growth is strongly correlated with margin will slightly improve based on two main c.SAR351mn in 2010 to double to c.SAR711mn big cities as well as untapped towns. Although population growth and spending power: The drivers: (1) the company is shifting towards in 2014. management aims to double the number of Saudi market should remain the main driver for higher profit margin products from Rocco and showrooms from 36 (at the end of 2014) to 72 Jarir’s expected sales growth. As such, the stationery products instead of lower-margin Assumed sustainability of its CCC: Based on our in the next 5-6 years, we forecast only a 75% expected population growth (2.5% per annum) products from electronics and (2) the initiatives understanding, the historical downward- achievement to reach 63 showrooms by 2020. and GDP growth by an average of 3.1% (2016- to increase after-sale services and offering headed trend for CCC from 54 days in 2010 to The rationale behind our assumption is based 2020), according to IMF estimates for Saudi spare parts should compensate for electronics 21 days in 2014 is expected to be less steep on the company’s investor presentation (April Arabia, are the main guidelines for our top-line lower margins at initial sale transaction. We over the forecast period declining to only 18 2015) and the company’s history of not projections. We assumed 2.5% and 2% annual anticipate a slight annual improvement in days by 2017. At current CCC indicators, the achieving its target of new store openings. growth for average sales per sq. ft. in KSA and EBITDA margin to reach 13.3% in 2020 vs. 12.9% company has reached its best operational Although the company was targeting to open GCC, taking into consideration the competitive in 2015 and compared to 13.3% in 2014. potential—in our view. Our estimates take into seven new showrooms in 2015, only three new pressure on some electronics prices. Based on account that further expansion in payables DOH showrooms (in addition to reopening one H1 2015 results, we expect 15% YoY growth in A stable dividend payout backed by strong may lower the favorable purchase prices showroom) were inaugurated YTD. In our 2015 total revenues, to be driven by 16% cash position: Based on the historical capex per obtained from vendors, while further forecasts, we expect Jarir will open one more expected growth in KSA revenues. While H1 1,000 sq. ft. and total estimated showrooms contraction in inventory DOH may affect new showroom in Saudi Arabia until the end of 2015 revenues were impacted by better area, we expect a 15.2% 6-year CAGR (2014- product availability to consumers, and further 2015. Beyond 2015, we conservatively assumed spending power due to the two-month salary 2020) in total capex to reach SAR199mn in contraction in receivables DOH may limit the annual addition of four showrooms (three in bonus leading to higher spending on consumer 2020, assuming a 10% annual growth in appetite to consume and thus lower sales Saudi Arabia and one in the GCC) during the items (electronics, smartphones, tablets and capex/000 sq. ft. Total area of showrooms is volume. next four-year period (2015-2018). Given the laptops), H2 2015 revenues should be affected expected to grow at a 6-year CAGR of 9.5% Jarir’s cash-conversion cycle (CCC) estimated growth in the net cash position, we positively by the summer and the back-to- from 1,356 (000 sq. ft.) 2014 to 2,337 (000 sq. school season. In our forecast horizon (2015- ft.) in 2020 based on the increase in showrooms 100 79 project five and six new showrooms in 2019 80 68 54 63 64 62 61 60 59 and 2020, respectively. 2020), we project an 12.1% 6-year CAGR in total number from 36 in 2014 to 63 in 2020. 60 36 35 30 revenues, on 11% and 23% estimated CAGR for Meanwhile, we expect the dividend payout 40 26 21 20 21 20 19 18 20 10 13 13 13 13 We conservatively assume a 5% reduction in KSA and GCC revenues, respectively. As for KSA, ratio at 80% starting 2015 onward, to be 0 new showrooms areas: In terms of showrooms we expect an 11.1% 6-year CAGR in total retail supported by the company’s estimated strong -20 revenues to be driven by showrooms net cash position. Management believes, if -40 area, Jarir stated that the recently-opened -60 (43) (51) (48) (53) (54) (54) (54) (54) showroom area in Saudi Arabia is around 4,000 expansions, while we expect a 7.5% CAGR in there are no additional cash requirements, the -80 sqm, while the area of the new showroom total wholesale revenues, assuming no dividend payout ratio will increase beyond 80%. expansions in wholesale showrooms. Although opened in the GCC is 3,600 sqm. Looking Accounts receivable DOH Inventories DOH backward, we estimate that the average area we expect only one new showroom per year in Accounts payable DOH CCC Source: Jarir, MubasherTrade Research estimates

Page 16 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

6-Yr CAGR 2012a 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e (2014-2020)

Showrooms total area (sqf) 000 sqf 1,195 1,195 1,356 1,524 1,683 1,835 1,979 2,147 2,337 9.5% Showrooms total area (sqm) 000 sqm 111 111 126 142 156 170 184 199 217 9.5% Average Area/Showroom 000 sqm 3.5 3.5 3.5 3.5 3.6 3.6 3.5 3.5 3.4 -0.3%

Operating showrooms (end of year) 32 32 36 40 44 48 52 57 63 9.8% New showrooms 2 - 4 4 4 4 4 5 6 7.0%

YoY growth in showrooms number % 6.7% 0.0% 12.5% 11.1% 10.0% 9.1% 8.3% 9.6% 10.5% YoY growth in showrooms area % 15.3% 0.0% 13.5% 12.4% 10.5% 9.0% 7.8% 8.5% 8.8%

Saudi Arabia Total retail showrooms in KSA 28 28 31 34 37 40 43 46 49 7.9% New showrooms in KSA - - 3 3 3 3 3 3 3 Estimated total area of operating showrooms in KSA 000 sqf 1,115 1,115 1,115 1,235 1,364 1,487 1,603 1,714 1,819 8.5% Estimated total area of new showrooms in KSA 000 sqf - - 119 129 123 117 111 105 100 -2.9% Estimated total area of showrooms in KSA 000 sqf 1,115 1,115 1,235 1,364 1,487 1,603 1,714 1,819 1,919 7.6% KSA Retail Revenues/showroom SAR mn 138 159 155 163 169 173 177 181 184 3.0% Sales/000 Sqf in KSA SAR mn 3.5 4.0 3.9 4.3 4.4 4.5 4.6 4.7 4.8 3.7% KSA retail revenues SAR mn 3,857.8 4,449.0 4,792.8 5,554.6 6,237.8 6,930.5 7,626.4 8,326.0 9,029.7 11.1% YoY growth % 15.3% 7.7% 15.9% 12.3% 11.1% 10.0% 9.2% 8.5% Total wholesale showrooms in KSA 5 4 4 4 4 4 4 4 4 0.0% KSA Wholesale Revenues/showroom SAR mn 86 104 114 124 134 144 154 164 176 7.5% KSA wholesale revenues SAR mn 429.0 414.0 456.0 497.0 536.8 574.4 614.6 657.6 703.6 7.5%

KeyAssumptions YoY growth % -3.5% 10.1% 9.0% 8.0% 7.0% 7.0% 7.0% 7.0% KSA revenues SAR mn 4,286.8 4,863.0 5,248.8 6,051.7 6,774.6 7,504.8 8,241.0 8,983.6 9,733.3 10.8% YoY growth % 13.4% 7.9% 15.3% 11.9% 10.8% 9.8% 9.0% 8.3% KSA weight to total revenues % 92.5% 92.8% 92.1% 92.1% 90.9% 89.8% 88.9% 87.9% 86.0% Egypt & GCC Total showrooms in Egypt & GCC 4 4 5 6 7 8 9 11 14 18.7% New showrooms in Egypt & GCC ` ` 1 1 1 1 1 2 3 Estimated total area of operating showrooms in Egypt & GCC 000 sqf 86 86 86 108 146 183 218 251 315 24.1% Estimated total area of new showrooms in Egypt & GCC 000 sqf - - 22 39 37 35 33 63 90 26.9% Estimated total area of showrooms in Egypt & GCC 000 sqf 86 86 108 146 183 218 251 315 404 24.7% Egypt & GCC Revenues/showroom SAR mn 87 95 90 86 97 106 114 112 113 3.9% Sales/000 Sqf in Egypt & GCC SAR mn 4.0 4.4 4.2 4.3 4.3 4.4 4.5 4.6 4.7 2.0% Egypt & GCC revenues SAR mn 347.4 379.7 449.9 516.0 676.7 851.5 1,024.8 1,233.1 1,586.5 23.4% YoY growth % 9.3% 18.5% 14.7% 31.1% 25.8% 20.4% 20.3% 28.7% Egypt & GCC weight to total revenues % 7.5% 7.2% 7.9% 7.9% 9.1% 10.2% 11.1% 12.1% 14.0%

Total Revenues SAR mn 4,634.2 5,242.7 5,698.7 6,567.7 7,451.2 8,356.3 9,265.7 10,216.7 11,319.8 12.1% Total revenues growth % 11.7% 13.1% 8.7% 15.2% 13.5% 12.1% 10.9% 10.3% 10.8%

Source: MubasherTrade Research

Page 17 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Jarir Marketing Company | Saudi Arabia | Initiation of Coverage Sunday, 13 September 2015

Business Model (Cont.’d)

Showrooms total area (000 sqm) and av. Total showrooms in KSA (LHS) and Egypt & GCC (RHS) Regional revenues growth (SAR mn) 0.3 3.6 area/showroom (RHS) 60 20 3.5 3.6 3.6 3.5 49 12.0 40.0% 0.2 3.6 46 50 43 31% 3.5 3.5 40 10.0 29% 37 15 26% 30.0% 0.2 3.5 3.5 40 34 31 8.0 20% 20% 3.4 28 14 18% 0.1 3.5 30 10 6.0 15% 20.0% 11 9% 0.1 3.4 20 9 4.0 8 15% 10.0% 111 126 142 156 170 184 199 217 7 5 2.0 13% 12% 6 11% 10% 0.0 3.4 10 5 8% 9% 8% 4 0.0 0.0% - - 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e Showrooms total area (sqm) Average Area/Showroom Egypt & GCC revenues KSA revenues Total retail showrooms in KSA Total showrooms in Egypt & GCC Egypt & GCC revenues growth YoY KSA revenues growth YoY

Net Income and Dividends (SAR mn) Revenues, EBITDA, and EBITDA margin (SAR bn) Total revenues growth (SAR bn) 2,000 12.0 13.3% 13.3% 13.4% 12.0 20.0% 15% 1,501 10.0 13.2% 10.0 1,500 1,345 13.1% 13.2% 13% 13% 15.0% 1,213 1,201 13.0% 12% 1,086 1,076 8.0 13.0% 8.0 11% 10% 11% 959 971 13.0% 838 869 12.9% 9% 1,000 745 767 6.0 6.0 10.0% 653 599 670 12.8% 522 12.8% 4.0 500 4.0 5.0% 12.6% 2.0 2.0 5.2 5.7 6.6 7.5 8.4 9.3 10.2 11.3 0 0.0 0.0% 0.0 12.4% 2013a 2014a 2015e 2016e 2017e 2018e 2019e 2020e

Net Income Dividends Total revenues EBITDA EBITDA margin Total Revenues Total Revenues growth

EBITDA, Capex, and FCFF (SAR bn) Total Debt and Equity (SAR bn) Net Debt/(Cash) and EBITDA (SAR bn) 2.0 3.0 2.7 2.0 1.5 1.5 2.4 1.3 1.5 1.3 2.5 2.2 1.5 1.1 1.2 1.1 1.2 1.1 1.2 1.9 0.8 1.0 0.9 0.9 1.0 2.0 1.7 1.0 0.7 0.8 1.0 0.7 0.8 0.8 1.5 0.6 0.6 0.7 1.4 0.5 1.5 1.2 0.2 0.0 0.5 0.4 0.0 1.0 0.0 -0.1 0.0 0.3 -0.5 -0.2 -0.2 0.5 0.1 0.2 0.1 -0.3 -0.4 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 0.0 0.0 -0.5 -0.2 -0.2 -0.2 0.0 -1.0

EBIT Capex FCFF Equity Debt Net Debt/(Cash) EBITDA

Source: MubasherTrade Research estimates

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Business Model (Cont.’d)

PER and PBV EV/Sales and EV/EBITDA Dividend Payout and Dividend Yield 23.4x 25.0x 22.0x 8.0% 82.0% 25.0x 23.1x 80% 80% 80% 80% 80% 80% 18.9x 21.8x 20.0x 7.6% 80.0% 16.5x 20.0x 18.8x 6.0% 14.6x 16.4x 78% 6.8% 15.0x 12.8x 13.1x 14.4x 6.1% 78.0% 12.3x 11.8x 15.0x 12.9x 5.5% 10.4x 10.6x 11.5x 4.0% 4.8% 9.2x 8.2x 10.3x 10.0x 7.3x 10.0x 4.2% 76.0% 6.5x 5.8x 3.5% 2.0% 3.2% 5.0x 2.8x 3.1x 74.0% 5.0x 2.4x 2.1x 1.9x 1.7x 1.5x 1.4x 75% 0.0x 0.0x 0.0% 72.0%

PER (x) PBV (x) EV/Sales (x) EV/EBITDA (x) Dividend Yield Dividend Payout Ratio

Revenues and EBITDA growth EBITDA margin and Net Profit Margin Estimted EBITDA margin in KSA and Egypt & GCC 17.9% 20.0% 13.3% 13.3% 20.0% 13.4% 13.2% 15% 13.1% 15.0% 15.0% 15.1% 15.1% 15.2% 15.2% 15% 14% 13.0% 13.8% 13% 13.2% 13.0% 15.0% 15.0% 13% 12.9% 13.3% 11% 11% 12% 13.0% 13.2% 12.8% 13.1% 13.1% 13.7% 13% 13% 12.8% 13.0% 10.0% 12.6% 12.7% 12.7% 12.8% 12.8% 12.9% 12.9% 10.0% 12% 12% 12.9% 11% 10% 11% 12.6% 12.8% 9% 5.0% 5.0% 12.4% 12.2% 12.5% 0.0% 0.0% 12.0%

Revenue Growth EBITDA Growth EBITDA Margin Net Profit Margin Est. EBITDA margin of KSA Est. EBITDA margin of Egypt & GCC

Net Debt (Cash)-to-Equity and Net Debt (Cash)-to-EBITDA ROAE and ROAA ROIC and WACC 70.0% 60.0% 60.0% 50.0% 55% 27% 50.0% 59% 59% 59% 59% 59% 51% 52% 51% 30.0% 58% 58% 58% 40.0% 49% 48% 20.0% 40.0% 30.0% 10.0% 1% 2% 30.0% 15% -4% 33% 35% 35% 35% 35% 0.0% -8% 31% 32% 32% 20.0% -11% 20.0% 8% 8% 8% 3% -14% -15% 8% 8% 8% -10.0% 1% 10.0% 10.0% -6% -20.0% -14% 0.0% 0.0% -30.0% -20% -25% -40.0% -28% Net Debt (Cash)-to-Equity Net Debt (Cash)-to-EBITDA ROAE ROAA Return on Invested Capital (ROIC) WACC Source: MubasherTrade Research estimates

Page 19 For more information on MubasherTrade, please visit our website at www.MubasherTrade.com or contact us at [email protected]. Please read the important disclosure and disclaimer at the end of this document. Disclosure Appendix

Important Disclosures

METHODOLOGY: We strive to search for the best businesses that trade at the lowest valuation levels as measured by an issuer’s intrinsic value on a per-share basis. In doing so, we follow both top- down and bottom-up approaches. Under the top-down approach, we attempt to study the most important quantitative and qualitative factors that we believe can affect a security's value, including macroeconomic, sector-specific, and company-specific factors. Under the bottom-up approach, we focus on the analysis of individual stocks by running our proprietary scoring model, including valuation, financial performance, sentiment, trading, risk, and value creation. COUNTRY MACRO RATINGS: We analyze the four main sectors of a country’s macroeconomics, then we assign , , and  star for low risk, moderate risk, and high risk, respectively. We use different weights for each economic sector: (a) Real Sector (35% weight), (b) Monetary Sector (15% weight), (c) Fiscal Sector (25% weight), and (d) External Sector (25% weight). STOCK MARKET RATINGS: We compare our year-end price targets for the subject market index on a total-return basis versus our calculated required rate of return (RRR). Taking into account our Country Macro Rating, we set the “Neutral” borderline (below which is “Underweight”) as 20% of RRR for  Country Macro Rating, 40% of RRR for  Country Macro Rating, and 60% of RRR for  Country Macro Rating. That said, our index price targets are based on the average of two models. Model (1): Estimated index levels based on consensus price targets of all index constituents. Stocks with no price targets are valued at market price. Model (2): Estimated index levels based on our expected re-pricing (whether re-rating, de-rating, or unchanged rating) of the forward price-earnings ratio (PER) of each index in addition to consensus earnings growth for the forward year. SECTOR RATINGS: On the sectors level, we focus on six major sectors, namely (1) Consumer and Health Care, (2) Financials, (3) Industrials, Energy, & Utilities, (4) Materials, (5) Real Estate, and (6) Telecom Services & IT. To assess each sector, we use the SWOT analysis to list the strengths, weaknesses, opportunities, and threats in each country. We then translate our qualitative SWOT analysis into a quantitative model to evaluate all six sectors across countries. Each of the measures we used, although mostly subjective, is assigned a score as either +1 (high impact), 0 (medium impact), or -1 (low impact). At a later stage, when assigning the final rating – Overweight, Neutral, or Underweight – for each sector in each country, we realize that sometimes it is unfair to assign equal weights for the sub-sectors in each major sector assessed. Hence, some of the sub-sectors are given different weights for their significant profile in each country. Additionally, the final rating for each sector in each specific country is assigned based on a relative calculation comparing this sector to all other sectors in this country. SECURITY INVESTMENT RATINGS: We combine intrinsic value, relative valuation, and market sentiment into a single rating. Our three-pronged methodology involves (1) discounted cash flows “DCF” valuation model(s), (2) relative If Risk Rating valuation metrics, and (3) overall sentiment. Whenever possible we attempt to apply all three aspects on the issuers or Total Return Low Moderate High is … securities under review. In certain cases where we do not have our own financial and valuation models, we attempt to (1) (2) (3) scan the market for other analysts’ value estimates and ratings (i.e. consensus view) on average. We compliment this with relative valuation and sentiment drivers, such as positive/neutral/negative news flows. For all issuers/securities Buy Higher than RRR Higher than RRR Higher than RRR covered, we have three investment ratings (Buy, Hold, or Sell), comparing the security’s expected total return (including (B) both price performance and expected cash dividend) over a 12-month period versus its Required Rate of Return “RRR” as calculated using the Capital Asset Pricing Model “CAPM” and adjusted for the Risk Rating we attach to each security. Hold Between RRR Between RRR Between RRR Our price targets are subjective and are estimates of the analysts where the securities covered will trade within the (H) and 20% of RRR and 40% of RRR and 60% of RRR next 12 months. Price targets can be derived from earnings-based valuation models (e.g. Discounted Cash Flow “DCF”), asset-based valuation models (e.g. Net Asset Value “NAV”), relative valuation multiples (e.g. PER, PBV, EV/EBITDA, etc.), Sell Lower than 20% Lower than 40% Lower than 60% or a combination of them. In case we do not have our own valuation model, we use a weighted average of market (S) of RRR of RRR of RRR consensus price targets and ratings. We review the investment ratings periodically or as the situation necessitates. We have decided not to publish a rating on the Not Rated SECURITY RISK RATINGS: We assess the risk profile of each issuer/security covered and assign one of three risk ratings stock due to certain circumstances related to the (NR) (High, Moderate, or Low). The risk rating is weighted to reflect different aspects specific to (1) the sector, (2) the issuer, company (i.e. special situations). (3) the security under review, and (4) volatility versus the market (as measure by beta) and versus the security’s average InvestmentRating Not Covered We do not currently cover this stock or we are annualized standard deviation. We review the risk ratings at least annually or as the situation necessitates. (NC) restricted from coverage for regulatory reasons. Other Disclosures MFS does not have any proprietary holding in any securities. Only as a nominee, MFS holds shares on behalf of its clients through Omnibus accounts. MFS is not currently a market maker for any listed securities. Analyst Certification I (we), Menna Attawia, Equity Analyst and Medhat Ali, Senior Equity Analyst, employed with Mubasher International, a company under the National Technology Group of Saudi Arabia being a shareholder of Mubasher Financial Services BSC (c) and author(s) to this report, hereby certify that all the views expressed in this research report accurately reflect my (our) views about the subject issuer(s) or security(ies). I (we) also certify that no part of my (our) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or view(s) expressed in this report. Also, I (we) certify that neither myself (ourselves) nor any of my (our) close relatives hold or trade into the subject securities. Head of Research Certification I, Amr Hussein Elalfy, Global Head of Research of Mubasher Financial Services BSC (c) confirm that I have vetted the information, and all the views expressed by the Analyst in this research report about the subject issuer(s) or security(ies). I also certify that the author(s) of this report, has (have) not received any compensation directly related to the contents of the Report. Disclaimer This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mubasher Financial Services BSC (c) (‘MFS’) has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; MFS makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. The opinions contained within the document are based upon publicly available information at the time of publication and are subject to change without notice. This document is not intended for all recipients and may not be suitable for all investors. Securities described in this document are not available for sale in all jurisdictions or to certain category of investors. The document is not substitution for independent judgment by any recipient who should evaluate investment risks. Additionally, investors must regard this document as providing stand-alone analysis and should not expect continuing analysis or additional documents relating to the issuers and/or securities mentioned herein. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. The value of any investment or income may go down as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of investments for which there is no recognized market, it may be difficult for investors to sell their investments or to obtain reliable information about its value or the extent of the risk to which it is exposed. References to ratings/recommendations are for informational purposes only and do not imply that MFS adopts, supports or confirms in any way the ratings/recommendations, opinions or conclusions of the analysts. This document is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MFS or its affiliates to any registration or licensing requirements within such jurisdiction. MFS accepts no liability for any direct, indirect, or consequential damages or losses incurred by third parties including its clients from any use of this document or its contents. Copyright © Copyright 2015, Mubasher Financial Services BSC (MFS), ALL RIGHTS RESERVED. No part or excerpt of this document may be redistributed, reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of MFS. MubasherTrade is a trademark of Mubasher Financial Services BSC. Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Issuer of Report Mubasher Financial Services BSC (c) is an Investment Business Firm Category 1, licensed and regulated by the Central Bank of Bahrain. Website: www.MubasherTrade.com E-mail: [email protected] Sales & Research Contact Details INSTITUTIONAL SALES RETAIL SALES RESEARCH

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